by Mish Shedlock, Mish Talk:
In the University of Michigan sentiment pool, consumers have soured on buying homes, cars, and durable goods.
Worst Buying Conditions in Decades
Bloomberg reports Americans See Worst Buying Conditions in Decades on High Prices
The University of Michigan’s preliminary sentiment index edged up to 71 from 70.3 in August, data released Friday showed. The figure trailed the median estimate of 72 in a Bloomberg survey of economists.
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Buying conditions for household durables, homes and motor vehicles all fell to the lowest in decades. The report said the declines were due to complaints about high prices. Consumers expect inflation to rise 4.7% over the coming year, matching the highest since 2008.
The university’s gauge of current conditions fell to 77.1, the lowest since April 2020, from 78.5. A measure of expectations rose to 67.1 from 65.1, according to the survey conducted Aug. 25 to Sept. 12.
Polls Not Surprising
The polls are not at all surprising and arguably next to useless. Polls do little other than show current conditions visible in other data.
For example, existing home sales have fallen every month since February. So, yeah, buying conditions are bad. What did the poll tell us we already did not know?
And if consumers are not buying homes, they are not buying appliances, furniture, and new cabinets to go in the homes.
Expectations are meaningless in both direction. If conditions improve, so will buying, regardless of what consumers currently think about the future.
If conditions get worse so will real (inflation-adjusted) spending and home buying.
At least the poll makes sense and matches reality. They don’t always do so.
Cyclical Components of GDP
Cyclicals such as housing and durable goods are the Most Important Chart in Macro.
Cyclicals including housing and durable goods only constitute ten to fifteen percent of GDP, but the swings account for variations between growth and recession according to Eric Basmajian at EPB Macro.
A Big Housing Bust is the Key to Understanding This Recession
On July 14, I did a follow up on the above idea in A Big Housing Bust is the Key to Understanding This Recession
Don’t expect strong consumer spending to save the day.
Factoring in Revisions and Inflation, Retail Sales Remain Very Weak
The amount of nonsense about strong retail spending recently is staggering. It’s real (inflation adjusted) spending that drives GDP, not nominal spending.
Real consumer spending peaked in March of 2021 at $236,100 million. It’s now $231,138.
Strong consumer spending? Where?
Real spending bottomed in December of 2021 and picked up for the next four months, through April.
Also, housing remained strong in 2021 and relatively strong in the first quarter of 2022.
That’s why I pegged a recession start In May.